Insurance giant Anthem Blue Cross agreed to reduce two planned premium increases for 2018 after California regulators questioned the company’s rationale for raising rates by as much as it had initially proposed.
The scaled-back rate hikes, in the individual and small-employer markets, will reduce premiums by $114 million, state officials said.
The California Department of Managed Health Care challenged Anthem’s estimates for future medical costs, in particular its prediction of a 30 percent jump in pharmacy expenses for the individual market — nearly double the estimates of two other big insurers and out of line with industry trends nationally.
As a result of the department’s intervention, the nation’s second-largest health insurer shaved 3 percentage points off its 2018 rate increase for individuals and families, still leaving a hike of 37.3 percent. That increase is the second-highest — after Molina Healthcare — among the 11 insurers that sell in the Covered California exchange. Anthem also cut its rate hike on small businesses by more than half, to 2.5 percent.
The smaller premium hikes are expected to save individuals about $21 million and small-business customers an estimated $93 million.
California’s two insurance regulators, the Department of Managed Health Care and an elected insurance commissioner, can pressure companies to reduce their rates, but neither has the authority to block rate hikes.
Shelley Rouillard, director of the managed care agency, said her department carefully scrutinizes rate filings to ensure “consumers are receiving value for their premium dollar. … Rate review is an important consumer protection and holds plans accountable to justify their rate increases.”
Anthem said in a statement that it works with regulators routinely “to revisit our assumptions and rates as more data becomes available. … We are pleased that the emerging data allowed us to provide some rate relief to California individuals and small businesses versus what was originally filed.”
Regulators said that during their review of Anthem’s small-group rates, the company updated its projection for medical spending, which resulted in a lower premium increase than originally proposed.
For the individual market, regulators at the managed care department dug deeper into Anthem’s forecast for prescription drug use and spending. “This is a much higher pharmacy trend than we have seen with other carriers and we will need sufficient documentation to consider it reasonable,” they wrote to Anthem.
In response to the state’s questions, Anthem lowered its estimate of the rise in pharmacy costs by 7 percentage points, to 23 percent. That led, in part, to the reduced rate increase.
Like all California insurers, Anthem had been asked by state officials to submit two rate filings for the individual market. The lower set of rates assumed that the Trump administration would continue to pay so-called cost-sharing subsidies that help low-income consumers with out-of-pocket costs. The higher rate increases, which state officials adopted on Wednesday, assume President Donald Trump might make good on his threats to end those payments.
Anthem had sought a 35.4 percent increase under the lower rate scenario and a 40.6 percent hike with a surcharge tacked on to reflect the possible loss of subsidies. That higher rate proposal was the one Anthem reduced by 3 percentage points.
The state’s examination of Anthem echoed concerns raised by the advocacy group Consumers Union in a letter to regulators on Sept. 7. The group questioned why Anthem’s projections were so much higher than its competitors’ and asked the state to demand additional documentation from the company.
Dena Mendelsohn, a staff attorney for Consumers Union in San Francisco, said she welcomed any reduction of the rate increase. “We’re glad to see the pharmacy trend was brought down during the rate review process. That is exactly why we need such a rigorous rate review process,” she said.
However, the 37.3 percent average rate increase from Anthem still “poses a real concern for consumers,” especially those who do not qualify for federal tax credits that help pay for premiums, Mendelsohn said.
Some of the follow-up information Anthem submitted to regulators about its drug costs is under seal. The insurer claimed it contained confidential trade secrets that are protected from disclosure under state law.
The Department of Managed Health Care said it was looking into whether that information can be released publicly.
Another insurer, L.A. Care Health Plan, also faced questions from the managed care department. In response, the health plan dropped its proposed rate increase in the individual market by nearly 9 percentage points, to 21.7 percent. That would generate savings of $9 million, according to the state.
L.A. Care told regulators it was able to lower its rates after getting new information about the amount of federal cost-sharing subsidies it receives.
Health Net, whose rates for some plans were reviewed by the California Department of Insurance rather than the managed care agency, cut a proposed premium increase of 23 percent for individual policies nearly in half, to 12.1 percent. That yielded an estimated savings of $15.1 million, according to the insurance department.
Overall, Molina Healthcare has the highest rate increase for 2018 among insurers selling on the Covered California exchange, at 44.7 percent. Valley Health Plan comes in lowest at 9.8 percent.
Blue Shield of California, the largest insurer in the state exchange by enrollment, fell in between at 22.8 percent. HMO giant Kaiser Permanente will charge 11.6 percent more, on average, next year. (Kaiser Health News, which produces California Healthline, is not affiliated with Kaiser Permanente.)